The crazy moves on Twitter earnings

Twitter is set to report earnings after the bell on Tuesday and if history is any guide, shares could make a big move.

The social media giant has had just five earnings releases since going public in 2013. The average move for the stock a day after it releases earnings has been close to 16 percent. The average move 12 days after earnings has been 17 percent in either direction. Three of those earnings releases have led to negative returns.

Earnings release date

Day after move

+12-day returns

4-Feb-14

-24%

-15%

29-Apr-14

-9%

-23%

29-Jul-14

20%

18%

27-Oct-14

-10%

-12%

5-Feb-15

16%

18%

Average

-9%

-3%

Average move size

16%

17%

But according to Dan Nathan, co-founder of RiskReversal.com, the market isn't expecting Twitter to move as much as its average in either direction.

"The options market is implying about an 11 percent one-day move on Wednesday," said Nathan. That would mean shares are expected to stay in a range between $45 and $57.

Nathan, who is long Twitter shares, sees those prices as close to technically significant levels. The stock's 52-week high is $55.99 and it "gapped up" from the $42.47 level in February after its most recent earnings report. A "gap up" is when a stock opens and stays well above its previous day's high.

Twitter shares have had a fantastic year so far and are up nearly 43 percent year-to-date. However, as of Monday's close, the stock is just 3 percent shy of Wall Street's average target price of $53, according to data compiled by FactSet.

Yet some traders believe Twitter's run may be done.

On Monday, shares in Twitter gained 1.7 percent and bullish trades in the options market outpaced bearish trades by a ratio of 2-to-1. However, a trader placed a long-shot bet that Twitter will fall substantially in the coming days.

Specifically the trader bought 2,000 contracts of the 39.50-strike puts expiring on May 15 for 10 cents each. Since each options contract controls 100 shares, the trader is betting $20,000 that Twitter's stock will fall below $39.40 or 24 percent below Monday's closing price 12 trading days from the company's earnings release.

"The options market is only pricing about a 5 percent chance that option is in the money," said Nathan.

Get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, and 24/7 support from dedicated trading specialists. Trade commission-free for 60 days and get up to $600 cash.

Options Action Newsletter:

Sign up to receive exclusive Options Action content. Each month you'll receive an exclusive message from host Melissa Lee and insight directly from one of the members of our Options Action panel. Keep your pulse on the market with the Options Action newsletter.

Please enter a valid email address

To learn more about how we use your information, please read our Privacy Policy.